All about Composition scheme in GST

All about Composition scheme in GST

1. Introduction: On 1st July 2017, a new era started in Indirect Tax, which changed the whole picture of Indirect Tax in India. GST has removed the maladies of existing Indirect tax system, at the same time it has also increased the compliances, rule & regulation, documentation and no. of return filing. Although, large organization can arrange the facilities to complete the compliance of GST, but at the same time small organization are not so capable to fulfill the compliance of GST.

The composition scheme is succor way for small organization to fulfill the require documentation in GST. This scheme is meant for small organization, it allows them to pay the flat rate and involving less –onerous documentation and facilitate them to file returns only once in a year. Those who opt for the composition scheme cannot take the benefit of Input Tax Credit.

2. Eligibility for composition scheme

Under section 10(1) of CGST act 2017, the following points are required for the eligibility of composition scheme:

• A registered person, whose aggregate turnover in preceding financial year does not exceed Rs. 1.5 crores, will be eligible to opt composition scheme. However, in case of an eligible registered person from the special state under section 25 of CGST Act 2017, the turnover in the preceding financial year should not exceed Rs. 75 lakhs.

• The Composition scheme can be opted person wise, not goods wise. Also, it should be noted that a taxable person cannot opt for payment of taxes under composition scheme for supply of one class of goods and regular scheme of payment of taxes for supply of other classes of goods. He can either opt the composition scheme for both of class or can opt the regular scheme for both of class of business .

3. Ineligibility for composition scheme

Under section 10(2) of CGST act 2017, following are the cases of ineligibility for composition scheme:

• Supplier of services other than supplier of restaurant service cannot opt the composition scheme.

• Supplier of goods which are not taxable under the CGST Act/SGST Act/UGST Act.

• An inter-state supplier of goods.

• Manufacturing of certain notified goods, like Ice cream & Edible ice cream, Pan masala, Tobacco & manufactured Tobacco substitutes.

• If a registered person has registration in normal scheme for one business, cannot take the registration in composition scheme from the same PAN Number.

• A person who is paying the GST liability under reverse charged mechanism, cannot opt the composition scheme.

• Option to opt the composition scheme would lapse, if the turnover exceeds Rs. 1.5 crores /Rs. 75 lakhs as per section 10(3) of CGST act 2017.

• If the proper officer has reason to believe that a taxable person is not eligible for composition scheme, then that person is not eligible.

• A person supplying goods through an electronic commerce operator. He is required to collect tax from the source under section 52.

• Casual and Non –Resident person are eligible to opt the composition scheme.

• If taxable person does not mention “Composition taxable person, not eligible tax on supplies” or “Composition taxable person” on the top of his bills and every notice or signboard displayed at the prominent place at his principal place of business is also not eligible to opt the composition scheme.

4. Benediction of composition scheme

The following are the benediction of composition scheme:

• Businesses can enjoy a much lesser tax liability when they avail this scheme.

• The biggest advantage of this is for startups and smaller businesses that often see cash crunches on a regular basis. Most startups that do not see a turnover of over Rs. 1.5crore /Rs. 75 are less likely to have extra cash that can go into taxes. With the composition scheme, the government has ensured that more startups can flourish in a market that has become friendlier towards their plight

• Businesses can also enjoy much higher liquidity as their taxes are set at a lower rate.

• Businesses can gain from lesser compliance that comes with all of these exemptions (maintaining records, filing returns, issuance of invoices, and so on), making it easier for them to run their operations as they do not have to spare a resource to get these things done.

5. Impairments of composition scheme

The following are the impairments of composition scheme:

• Businesses will have a limited territory in which they can perform their operations. If one has availed the composition scheme, then he cannot carry out inter-state transactions. This will make the scope of his business quite small.

• If one is availing the composition scheme, then he cannot supply goods, which are exempt from GST. For instance, cashew nuts. He also cannot supply his goods with the help of an e-commerce portal. This will make it quite hard to function in present scenario of internet.

• There will be no input tax credit, which will be available to one’s business if he is availing this scheme.

6. Rate for composition scheme

The GST rates that apply to composition dealers are quite different from the non-composition dealers. Following table shows the difference (As per the Notification No. 2/2019-Central Tax (Rate), dated March 7, 2019 ):

Type of BusinessCGSTSGSTTotal
Manufacturer and Traders0.50%0.50%1%
Supplier of food & drinks (restaurant business)2.50%2.50%5%
Goods & Services (deemed as composite supply)0.50%0.50%1% Provided turnover of services does not exceeds 10% of total turnover in preceding year or Rs 5 Lakhs ,

whichever is higher

Goods or services or both (deemed as mixed supplies)3%3%6%

7. Procedural requirement for Composition scheme

Following are the points for the procedural requirement:

• Any person who applies for registration under GST has an option to pay tax under composition scheme in Part B of form GST REG-01. It shall be considered as an intimation to opt the composition scheme. So, whoever wants to opt the composition scheme should file the Part B of form GST REG-01.

• If a person is already registration under GST, can file the form GST CMP-02 to opt the composition scheme. It is also an intimation to opt the composition scheme.

• Those who opt the composition scheme to fill the form GST CMP-02, must furnish the statement in form GST ITC-03 within a period of 60 days from the commencement of the relevant financial year.

• If a person wants to withdraw from the composition scheme, he must file the form GST CMP 04 for cessation from the composition scheme.

8. Cessation of Composition scheme

Following are the points for the cessation of composition scheme:

• If a person does not fulfill the condition of section 10 of CGST act 2017, his registration under the composition scheme shall be ceased.

• If the turnover of the company in any financial year exceed Rs. 1.5 crore /Rs. 75 lakhs, he must take the mandatory cessation from the composition scheme.

• Any person can take the voluntary withdraw from composition scheme to take the advantage of input tax credit.

• If any composition taxable person gets the Form GST CMP 05 for SCN (Show cause notice) from proper officer, he has to withdraw from the composition scheme.

• If a person had withdrawn from the one unit, he can apply for all the other unit with same PAN.

9. Conclusion

The GST law provides the option of availing the benefit of composition levy to small businesses. The objective of composition scheme is to bring simplicity, less compliance and more benefits for small business unit. Under the composition scheme of GST, one has the option to pay GST taxes calculated at a flat rate on taxable turnover. So “Composition Scheme” might be an answer. The word itself brings a surge of relief to many people. Lesser compliances, few hassles would indeed help a lot. But, be cautious, delve deeper and read between the lines.

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